The close: Industrials, materials lead TSX higher

World stocks were subdued Monday after China reported its slowest economic expansion in 30 years and the International Monetary Fund cut its forecasts for global growth this year.

Canada’s main stock index reversed early losses and continued its rise on Monday.

The Toronto Stock Exchange’s S&P/TSX composite index was unofficially up 50.33 points, or 0.33 per cent, at 15,354.16.

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Seven of the index’s 11 major sectors were higher, led by a 0.7-per-cent increase in industrial stocks. Canadian National Railway Co. jumped 2.3 per cent, while WestJet Airlines Ltd. and SNC-Lavalin Group Inc. rose over 0.9 per cent.

The materials sector, which includes precious and base metals miners, also pared back early declines to close 0.6 per cent higher, despite gold prices dripping to its lowest level in almost a month on Monday. Turquoise Hill Resources Ltd. increased 4.6 per cent, while Nutrien Ltd. was up 1.8 per cent.

The Canadian dollar weakened against its U.S. counterpart on Monday as investors worried about progress on trade talks between the United States and China and after the International Monetary Fund cut its world economic growth forecasts.

The IMF predicted the global economy would grow 3.5 per cent in 2019 and 3.6 per cent in 2020, due to weakness in Europe and some emerging markets, and it said failure to resolve trade tensions could further destabilize a slowing global economy.

The United States and China have made little progress in trade talks on the potential sticking point of China’s alleged intellectual property theft, according to Bloomberg.

Hopes that the world’s two largest economies are moving closer to a trade deal have helped boost stocks since the start of the year.

“Today was the first time we have seen a headline in 2019 that maybe the negotiations are a little further apart than what markets had been previously anticipating,” said Scott Smith, managing partner at Viewpoint Investment Partners.

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The Canadian dollar was trading 0.2 per cent lower at 1.3294 to the greenback, or 75.22 U.S. cents, which matched the decline for the New Zealand dollar as the biggest among G10 currencies.

The loonie, which hit a nine-day low on Thursday at 1.3319, traded in a range of 1.3257 to 1.3318.

European shares fell on Monday from six-week highs as a slowdown in China’s economy stalled a global equity rally, but sterling rallied to the day’s highs after Prime Minister Theresa May promised to be more “flexible” with lawmakers over Brexit.

Trade in general was subdued with U.S. markets closed but equity prices were hit after data showed the Chinese economy, the world’s second biggest, grew 6.4 per cent in the fourth quarter from a year earlier, matching levels last seen in early 2009 during the global financial crisis.

The number was in line with forecasts, while factory output picked up stronger-than-expected in December and stronger services sector were some bright spots. That, along with expectations of more stimulus from Beijing, pushed Asian markets to the highest since early-December .

But the rally in world shares appeared to end there.

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A pan-European equity index fell 1.3 per cent, below six-week highs hit on Friday while Germany shares, heavily exposed to exports to China, was 0.6 per cent lower on the day.

U.S. stock market futures, which offer an indication of how Wall Street shares will next open, were down roughly half a percent.

“It seems that the optimism we saw in Asia did not extend into Europe,” said Brittany Baumann, macro strategist at TD Securities in London.

“And the start of this week is a reflection of the downside risk that still exist - Brexit and China/U.S. trade developments.”

China’s economy faces deep and complicated changes, President Xi Jinping said on Monday.

Growing signs of weakness in China -- which has generated nearly a third of global growth in recent years -- has fueled anxiety about risks to the world economy in recent weeks and are weighing on profits for firms such as Apple.

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“On balance, the (China) data is relatively positive and does not point to a hard landing,” said Timothy Graf, head of macro strategy at State Street Global Advisors in London.

“The consumption data being better than expected is the positive takeaway in that China is trying to engineer a move towards a consumer-led economy.”

But in other signs of caution, the Australian dollar , often used a liquid proxy for China investments, nudged down to $0.7156.

In currency markets, sterling firmed after Prime Minister Theresa May indicated she would be more “flexible” with lawmakers, even though she refused to rule out a no-deal Brexit. There are few signs she can break a deadlock with parliament after her Brexit deal was rejected last week.

May offered to tweak her defeated deal by seeking further concessions from the European Union on a backup plan to avoid a hard border in Ireland.

Sterling fell initially as she spoke, then climbed to session highs, rising above $1.29. Against the euro it touched a high of 88.07 pence, up 0.2 per cent on the day, reversing earlier losses.

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“Her failure to detail Plan B could be the catalyst to the parliament to taking control of the process,” John Marley, a senior currency consultant at FX risk management specialist, SmartCurrencyBusiness, said.

“Ultimately that makes an extension, a deal or even a second referendum more likely.”

Britain’s FTSE index traded around flat while British government bond yields slipped 3 basis points to 1.32 per cent.

Oil prices edged up on Monday, reversing earlier losses, as investors shrugged off data that confirmed China’s economic growth is cooling and instead latched on to positive supply-side drivers for the market.

Brent crude oil futures were up 12 cents at $62.83 a barrel versus Friday’s settlement price, while U.S. crude futures were up 19 cents to $53.99 a barrel.

Stock markets are still up so far this month, which has given oil investors more confidence to bet aggressively on a rise in crude prices.

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Analysts said a more robust backdrop for financial markets and the prospect of slower crude production growth were the major drivers behind the rally in oil.

“The stock market performance is one of the reasons why oil keeps marching higher. There also seems to be a general belief that the agreed cut in OPEC+ production will be sufficient to balance the market,” PVM Oil Associates said in a note.

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